Aging and Economic Growth: The Role of Factor Markets and of Fundamental Pension Reforms

Abstract

This paper analyzes the implications of demographic change for economic growth in di®erent countries. Quantitative projections are based on a multi-country over- lapping generations model that is augmented with actual demographic data and pro- jections for di®erent OECD regions. According to the simulation results, per capita incomes decline substantially when aging processes peak in some regions and di®er- ences between regions are quite large. Additional capital formation and increases in labor supply resulting from a fundamental pension reform are found to mitigate but not to solve the problem.